Archive for May, 2007
Monday, May 14th, 2007
It looks like a busy week ahead for the markets, as Wall Street waits for CPI and housing market data due out Tuesday and Wednesday. In addition, Bernanke will speak twice this week (once on Tuesday about credit derivatives and again on Thursday regarding subprime lending). Finally, consumer sentiment numbers from the University of Michigan are released on Friday.
In other news, everyone is talking about private-equity firm Cerberus’ purchase of around 80% of Chrysler (it will be respun as Chrysler Holding LLC). According to the Wall Street Journal, the sale will allow DaimlerChrysler to get rid of about $18 billion in liabilities related to pensions and health-care. DaimlerChrysler will then become Daimler AG after restructuring of the new corporation is complete.
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Sunday, May 13th, 2007
We like to keep our readers periodically updated with the best resources we come across online and in print. This month I’ll feature one of my all time favorite sites which is maintained by a very well respected source in the investing community. If you have an MBA or have ever taken a corporate finance course, you’ve probably heard of Dr. Aswath Damodaran. He is currently a professor of finance at NYU’s Stern School of Business (one of the top 10 business schools in the US) and an established researcher in corporate finance, valuation, and portfolio management. I have come across his name more than once while researching stock valuation and DCF analysis. In fact, not long ago I was watching a CNBC special on Warren Buffett and was pleasantly surprised to see Dr. Damodaran being interviewed.
Damodaran.com redirects to his NYU course page here. You’ll find a wealth of information on this site from the basics of corporate finance and equity valuation to actual market data and pre-built spreadsheet models. I was also extremely pleased to see that webcasts of his courses have also been posted on the site. I shudder at the thought of how much it cost per semester hour for me to take corporate finance just as an undergraduate - so it is really nice to see this material available to investors and students.
Dr. Damodaran has also written several books which you can find readily available at most bookstores. I am in the process of reading his book Investment Fables: Exposing the Myths of “Can’t Miss” Investment Strategies and have found it very helpful and objective. I like to consider both sides of every coin, and this book questions some well entrenched ideas about investing. I highly recommend it for those who want to find themselves among the select ranks of investors beating the market.
Related Links:
Damodaran.com
Damodaran books on Wiley.com
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Saturday, May 12th, 2007
It was another wild market ride this week in the wake of the Fed’s decision to hold interest rates flat at 5.25%. The Dow plunged 148 points on Thursday, after the release of lackluster same-store retail-sales data, then rebounded 111 points to close out the week up half a percent. So, the lingering question on Wall Street is: Where do we go from here?
The truth is, there are a number of differing opinions on what direction the market will take moving forward. Some analysts say the bull market has had a lengthy run, and is ripe for an extended pullback. Others believe healthy growth in blue chip earnings and reasonable valuations will sustain the rally. The bottom line: nobody really knows. When uncertainty abounds I often think of Benjamin Graham’s iconic “Mr. Market” from his classic the Intelligent Investor. Mr. Market represents the unpredictable nature of the market, where many arbitrary factors impact its overall value (i.e., Mr. Markets “mood”). It’s times like these that I expect the worst and hope for the best - and maintain focused on a long term investing strategy. While nothing is ever certain, the odds are that if you keep your eyes on the distant horizon, it is very probable you will end up a winner.
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Wednesday, May 9th, 2007
Investors await the Fed’s 2:15 EST announcement on interest rates. While consensus is that the FOMC will keep the Federal Funds rate unchanged at 5.25%, Wall Street is more interested in hints that may come via comments on future rate policy.
Also, more M&A activity in the news today, as several private-equity firms (including Blackstone & KKR) come together to assess a possible buyout of Alltel. According to the Wall Street Journal, the relatively small amount of long-term debt on Alltel’s balance sheet makes the wireless carrier an attractive target. Taking a quick look at the data from a takeover perspective, Alltel does appear relatively inexpensive with an enterprise value of around $25 billion vs. peers like Sprint ($79B) and Verizon ($149B). However, its Enterprise Value / EBITDA ratio is 9.1 vs. 6.5 for Sprint and about 5.0 for Verizon. From the acquiring company perspective the stock, at first glance, does not appear to be undervalued vs. its peers (for more information see Enterprise Value).
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Monday, May 7th, 2007
Alcoa’s hostile takeover bid for Alcan propelled the Dow higher today, and sent Alcan’s stock price rocketing up 30%. If closed, the deal will create an aluminum powerhouse with control of approximately 1/4 of the aluminum market. However, some believe additional suitors for the company could still emerge, possibly trumping the current $33 billion dollar bid for the Canadian company. Investors also await fresh news from the Fed due out Wednesday (consensus is that rates will remain unchanged).
According to the Wall Street Journal, the Dow has closed higher in 23 of the last 26 sessions. If the Monday trading session ends in positive territory, it will mark the longest winning streak for the Dow since 1927. So, whatever happened to “sell in May, then go away”? Even given strong earnings from the Blue Chips and recent M&A activity, we may be due to for a pullback soon as we move into summer.
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